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STATE FARM MUT. AUTO. v. W.R. GRACE

October 26, 1993

STATE FARM MUTUAL AUTOMOBILE INSURANCE CO., PLAINTIFF,
v.
W.R. GRACE & CO., DEFENDANT.



The opinion of the court was delivered by: Richard Mills, District Judge:

    OPINION

Asbestos property-damage litigation.

Fifty day trial conducted piecemeal from January to August 1993.

End result: jury awards State Farm $17,889,632.47 damages, but also finds State Farm thirty percent negligent.

Now before the Court, W.R. Grace's motions:

(1) to dismiss all claims as untimely filed under the Illinois Construction Statute of Repose;

(2) for new trial;

(3) for judgment after trial.

I. Background

State Farm brought this action to recover the costs of management, removal, and replacement of W.R. Grace's asbestos containing fireproofing, Monokote-3 (MK3), from State Farm's corporate headquarters in Bloomington, Illinois, and its regional office buildings in Tempe, Arizona and Austin, Texas. Construction of the three buildings took place between 1970 and 1973. State Farm originally sought damages based on the legal theories of strict liability, negligence, fraudulent misrepresentation, and willful and wanton misconduct. State Farm's total prayer for compensatory damages for the three buildings was $34,494,483.23. State Farm also sought punitive damages from W.R. Grace.

State Farm's negligence Count averred that asbestos was not necessary in MK3 and that when W.R. Grace was forced to discontinue sales of MK3 in light of regulations promulgated by the Environmental Protection Agency, it replaced the asbestos with shredded paper fiber. State Farm also alleges negligence because W.R. Grace never placed any warnings on MK3, despite the fact that W.R. Grace had knowledge of the harms of asbestos from: (a) its operation of an asbestos-contaminated vermiculite mine and MK3 production facilities (where workers were getting sick); and (b) its involvement in the late 1960's with the public health debate on asbestos. Despite this knowledge, State Farm alleges that W.R. Grace continued to sell MK3 until the federal ban in July 1973, even though W.R. Grace had developed a non-asbestos Monokote in 1970 and was selling it elsewhere.

W.R. Grace denied liability under any legal theory. In addition, W.R. Grace raised the following affirmative defenses: statute of limitation, Illinois Statute of Repose, state of the art, misuse, comparative negligence, and assumption of the risk.

W.R. Grace took the position that the harms from in-place asbestos are greatly overstated. Specifically, W.R. Grace alleged that documents produced by State Farm revealed that airborne asbestos fiber levels in their buildings were well within and below any applicable government standard, demonstrating that W.R. Grace's fireproofing should not be removed and could be managed with an effective operation and maintenance program.

Jurisdiction of this Court was invoked under 28 U.S.C. § 1332.

The trial was bifurcated. On May 11, 1993, the jury returned a verdict on the liability phase of the trial. The jury returned a verdict of guilty on State Farm's Count of negligence and not guilty on State Farm's Counts of fraud, strict liability, and willful and wanton conduct. In addition, the jury found that State Farm was 30 percent contributorily negligent.

On August 26, 1993, the jury returned a verdict on the damages phase of the trial. The jury assessed State Farm's damages to be $17,889,632.47.

After the verdict, W.R. Grace moved for judgment as a matter of law claiming that this suit should be barred because of the Illinois Statute of Repose and the fact that the jury verdicts were inconsistent. W.R. Grace also seeks a new trial for a host of procedural and substantive issues.

II. Motion for Judgment as a Matter of Law

(A). Statute of Repose

The Illinois Construction Statute of Repose states that:

  No action based upon tort, contract, or otherwise
  may be brought against any person for an act or
  omission of such person in the design, planning,
  supervision, observation, or management of
  construction, or construction of an improvement
  to real property after 10 years have elapsed from
  the time of such act or omission.

Ill.Rev.Stat., ch. 110, ¶ 13-214(b).

Because State Farm's buildings were constructed between 1970 and 1972 and this suit was not brought until 1989, W.R. Grace claims that the ten-year repose limit in this statute has expired and the suit should be barred.

1. Procedural History

This marks the fifth time that the Court has considered whether W.R. Grace is protected by this statute. On January 3, 1993, the Court denied W.R. Grace's motion for summary judgment on this issue. At that time, the uncontested evidence present in the record supported the finding that W.R. Grace was a "mere manufacturer" of asbestos materials. This distinction was important, we noted, because of the dicta in Witham v. Whiting Corp., 975 F.2d 1342, 1346-47 (7th Cir. 1992). Witham was the only Seventh Circuit opinion at that time which addressed the issue.

In Witham, the plaintiff sued under theories of strict products liability and negligence when he was struck by a girder attached to a 40-ton main hoist crane manufactured by the defendant. The Court noted that "[t]here may be a problem with applying the improvement to real property statute of repose to a manufacturer of a product used in the improvement who was otherwise uninvolved with the particular construction project." Id. at 1346. In addition, the court stated that the applicable legislative history did not extend the statute to protect the manufacturer of products.*fn1 However, this dicta was not dispositive — even by its own terms.*fn2 Witham conceded that the Illinois Supreme Court must eventually resolve the issue. However, despite the disclaimer, the court found that defendant was not a mere manufacturer ("It did not simply pluck the crane from its inventory and ship it to Allied. Instead, it specially manufactured the crane for Allied based on information Allied provided about its plant." Id. at 1347.) and extended the statute of repose to protect the defendant.

Despite the forecast in Witham, Illinois Supreme Court did not resolve the issue. As a result, on January 15, 1993, this Court denied W.R. Grace's motion for interlocutory appeal. At issue was whether the Illinois Supreme Court opinion in St. Louis v. Rockwell Graphic Systems, Inc., 153 Ill.2d 1, 178 Ill.Dec. 761, 605 N.E.2d 555 (1992), superseded the analysis of Witham. With the question of whether manufacturers are included within the statute of repose before it, the Illinois Supreme Court remanded the case back to the trial court for a determination of whether the equipment in question (a printing press) was an improvement to real property. As a result, this Court denied W.R. Grace's motion for interlocutory appeal because neither party submitted evidence on the issue of whether the asbestos was an improvement to property.

On April 22, 1993, the Court denied W.R. Grace's motion for judgment as a matter of law. The Court found that the statute of repose issue was extremely close and would be determined by the extent to which W.R. Grace's involvement met the statutory threshold of "design, planning, supervision or observation." We noted that at least one federal court in our circuit had excluded asbestos manufacturers from protection under the statute of repose.*fn3 Nevertheless, we waited for a definitive ruling from the Seventh Circuit or the Illinois Supreme Court.

Finally, on May 26, 1993, we denied W.R. Grace's motion for judgment as a matter of law after the liability portion of the trial on this issue. We invited the parties to address two issues in post-trial motions: (1) the legislative history behind the statute of repose (was the statute intended to protect only those who perform professional design and construction activities?); and (2) statutory construction (does the statute of repose protect only claims arising out of "design, planning, supervision, or observation," of the defendant, or all claims?).

2. Legislative and Judicial History

Contrary to Whitham's suggestion that the legislative history of the statute of repose protects a class of defendants (architects, engineers, and the like) and excludes another class (manufacturers of products), we find that the statute of repose does not exclude persons based upon their status. Rather, the pivotal issue is whether the defendant engages in the enumerated activities (i.e., was the defendant engaged in the "design, planning, supervision, observation, or management of construction," Ill.Rev.Stat. ch. 110, ¶ 13-214); Hausman v. Monarch Machine Tool Co., 997 F.2d 351, 353-54 (7th Cir. 1993) ("`[m]ere labels are not dispositive' and section 13-214 protects, on its face, anyone who engages in the enumerated activities." (citations omitted)).

Originally, the statute of repose was drafted to protect only certain design professionals or contractors.*fn4 Ill.Rev.Stat. ch. 83, § 24f (1965). This statute was struck down as unconstitutional in 1967. Skinner v. Anderson, 38 Ill.2d 455, 231 N.E.2d 588 (1967). In Skinner, the court held that section 29 of the Limitations Act (the predecessor to § 13-214) was unconstitutional as special legislation because it protected architects and contractors from untimely lawsuits, but not others, such as owners, tenants or manufacturers of materials used in construction:

  The arbitrary quality of the statute clearly
  appears when we consider the architects and
  contractors are not the only persons whose
  negligence in the construction of a building or
  other improvement may cause damage to property or
  injury to persons. If for example, four years after
  a building is completed a cornice should fall
  because the adhesive used was defective, the
  manufacturer of the adhesive is granted no
  immunity. And so it is with all others who furnish
  materials used in the constructing the improvement.
  But if the cornice fell because of defective design
  or construction for which an architect or
  contractor was responsible, immunity is granted.

Id. at 38 Ill.2d at 459-60, 231 N.E.2d at 590-91. (Court's emphasis).

W.R. Grace argues that the above quotation demonstrates that the Illinois Supreme Court intended a manufacturer of a basic construction material (adhesive) to be protected under the statute of repose. The Court does not agree. The Court's conclusion is evident from the subsequent history of the statute. In 1979, the Illinois legislature passed a new statute of repose. The legislature eliminated the exclusivity language of the original statute and expanded the protection from untimely lawsuits to "any person" who, ten years or later, is accused of wrongful acts or omissions related to an improvement to real property.

This statute was again struck down by the Illinois Appellate Court in People ex rel. Skinner v. Hellmuth, Obata & Kassabaum, Inc., 135 Ill. App.3d 765, 90 Ill.Dec. 448, 482 N.E.2d 155 (1985) (Hellmuth I). After citing the language of § 13-214 which protects "design, planning, supervision, observation or management of construction or construction of an improvement to real property" (90 Ill. Dec. at 450, 482 N.E.2d at 157), the panel recognized "again, the material provider whose product was defective causing injury or damages has no immunity. . . ." Id. at 452-53, 482 N.E.2d at 159-60. The court believed that the exclusion of materialmen (and owners of property) from protection was unconstitutional.

However, on appeal, the Illinois Supreme Court held that the legislative classification which concerned the appellate panel (exclusion of owners and materialmen) was not unconstitutional. People ex. rel. Skinner v. Hellmuth, Obata & Kassabaum, Inc., 114 Ill.2d 252, 102 Ill.Dec. 412, 500 N.E.2d 34 (1986) (Hellmuth II). The court deferred to the legislature which it said could constitutionally classify "construction activities separately from other activities." Id. 102 Ill.Dec. at 416, 500 N.E.2d at 38. More importantly for our application, Hellmuth II stated that the statute of repose did not include or exclude persons "based upon their status (e.g. architect, contractor, materialmen)." Id. 102 Ill.Dec. at 415, 500 N.E.2d at 37. Rather, the court ruled that the statute of repose protects only those who engage in the enumerated activities protected by the statute: "design, planning, supervision, observation or management of construction." In this ...


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